Thursday, February 23, 2012

Telecom boom turns bust in 2001

A mover pushes
boxes at Excite@Home headquarters in Redwood City, Calif., on Dec. 6. The
broadband internet provider has filed for bankruptcy and will close in
February.(PHOTO - Color) (ASSOCIATED PRESS PHOTOS) Workers bore a hole through
a Twin Falls, Idaho, street for running a fiber-optic cable in June. A year ago
analysts were touting 2001 as a big year for telecommunications, but
expectations were not met.(PHOTO - Color)

A year ago,
analysts were touting 2001 as a big year for telecommunications. Most consumers
were supposed to get high-speed home Internet access and reliable cell phones
with snappy Net access and e-mail. Then the lines went dead.

The Nasdaq
Telecommunications Index, which tracks stocks of 317 telecom companies, plunged
40 percent in 2001. Tens of thousands of telecom workers lost jobs. Tens of
billions of dollars in market capitalization evaporated.

Miles and miles of
newly laid fiber-optic cable went unused.

"Last year we
were looking toward a year of excitement and exhilaration," said Jeff
Kagan, an Atlanta-based telecom analyst. Now, "the sizzle is gone."

Still shivering in
reality's shadow, the telecom industry isn't expected to climb out of its
cocoon anytime soon.

Analysts say 2002
will be a back-to-fundamentals year, with companies cutting spending and taking
refuge in core businesses.

Nortel shed more
than half its 95,000 workers after declaring an unheard of $19.4 billion
second-quarter loss.

The company is
starting to dig itself out. Nortel landed big contracts in the second half of
the year, including a $1.1 billion deal with Sprint and big sales to SBC
Communications and VoiceStream Wireless.

Others weren't so
resilient. Many companies that burned through Wall Street's cash to build
networks now lie on the scrap heap. Investors took back their money as quickly
as they gave it. Endeavors without strong revenues failed, Kagan said.

A band of upstart
broadband service providers probably fared the worst. NorthPoint
Communications, Rhythms NetConnections, PSINet and Excite@Home are either gone
or clinging to life with the help of bankruptcy court.

Some say these
companies were tripped up by poor cooperation from the four "Baby
Bell" local phone companies who own the critical "last mile" of
the residential phone network.

Whatever the
reason, the upstart providers ran out of cash and fell apart before they could
reach profitability. In some cases, customers were cut off and left to fend for
themselves.

For U.S.
consumers, most of whom still crawl the Internet from dial-up connections and
complain about spotty cellular service, 2001 was mostly a lost year.

Just 10 million
U.S. households are now accessing the Internet via broadband, using either DSL
or cable, said Joe Laszlo, broadband and wireless analyst for Jupiter Media
Metrix.

By the end of
2002, that number will have risen to 15 million compared with the 53 million
U.S. dial-up households, Laszlo predicted. In Japan and South Korea, broadband
adoption is growing at a quicker pace, fueled by lower monthly fees, he said.

Another
disappointing laggard was the ballyhooed wireless upgrade to so-called 3G or
third-generation capabilities. These upgrades were supposed to provide more
bandwidth for better voice service along with faster e-mail, text messaging and
Web surfing.

In Japan, 3G
capabilities are already available on a limited basis. In Europe, they are
expected to begin to emerge in the coming year.

In the United
States, where the broadcast spectrum targeted for 3G service has yet to be
vacated by the broadcasters now occupying it, 3G services are still more than a
year away.

"We're way
behind," said Deloitte Consulting partner Martin Dunsby.

Now, even the
modest half-step to 2.5G technology -- which will double transmission speed and
offer "always on" connections to e-mail and text messaging services
-- isn't expected to be deployed across the United States until well into 2002.

Foot-dragging
in the United States is partly the fault of carriers' insistence upon building
separate cellular networks using competing standards. Most carriers don't allow
customers to roam from one network to another